We all have many financial obligations to meet each month, from car payments and mortgages to health insurance and retirement funds. For many households, meeting those obligations is difficult, and since the coronavirus pandemic in 2020, the poverty rate spiked from 9.3% in June to 11.7% in November of the same year. Small business owners had their own troubles in the pandemic with statewide shutdowns dramatically decreasing revenue. For those with accumulated debts and many other financial obligations they’re having a hard time paying, bankruptcy can be a source of long-term, effective debt relief. If you’re considering filing for Chapter 13 or Chapter 7 bankruptcy in Windom, MN, Behm Law Group, Ltd. can help you build a strong case for the most beneficial outcome.
For individuals and businesses alike, the most commonly filed kind of bankruptcy is Chapter 7 liquidation. This chapter works to discharge debts in exchange for the liquidation/sale of the filer’s non-exempt assets. Individual filers are typically able to protect all of their property with the exemptions provided under state law or under the bankruptcy code. At worst, exemptions will protect the equity or value a bankruptcy filer has in one’s home, car, appliances, items for their jobs/business, and other various properties.
In a business case, the process of Chapter 7 bankruptcy sometimes results in the shutdown of business operations. Businesses organized as corporations or LLC’s are not able to claim exemptions in bankruptcy. Therefore, when a business files for bankruptcy relief, all the business assets will be liquidated or sold by the chapter 7 trustee. For a struggling business, the question can become whether it should either file for bankruptcy relief or liquidate/sell its assets and use the proceeds to directly work with its creditors to settle its debts.
Benefits of a business liquidating its assets on its own:
- The process will be private
- The business won’t have to pay bankruptcy filing fees or bankruptcy attorney fees
- The business can choose which debts it will repay first and how much each creditor gets from the liquidation of the assets
- The business can generally prioritize the payment of personal loans to friends and relatives
- It’s likely that the business will get more value from the liquidation/sale of its own assets than having the assets liquidated in a bankruptcy because the business would have more control over the selling process and there would not be any funds paid to a chapter 7 trustee from the sale of the assets
Benefits of filing for Chapter 7 bankruptcy:
- Liquidation/sale will be done more quickly
- One’s personal assets generally won’t be vulnerable in a Chapter 7 business case unless one’s business is a sole proprietorship or a partnership
- The business receives the benefit of the automatic stay on creditor action during the bankruptcy which prevents creditors from employing or continuing collection activities
- Business bankruptcy typically won’t affect your personal credit
- The liquidation process is handled through the bankruptcy court, so you have no responsibility in finding buyers or distributing repayment to creditors. The chapter 7 trustee takes care of all such details.
- The court also administers and governs any interaction between you and your creditors so the process will be as fair as possible
- There is complete finality when the bankruptcy process is over. No creditors will be able to sell any of their claims to debt purchasers.
If you’re personally liable for your business debts–for example, if you own a sole proprietorship or partnership–you may want to consider filing for bankruptcy and having the chapter 7 liquidation process address your personal and business debts together. With a partnership, however, it’s important to make sure your partner understands they’re still liable for their end of the business debts unless they also file for bankruptcy relief.
Whether you own a business or not and you’re considering filing for Chapter 13 or Chapter 7 bankruptcy in Windom, MN, contact Behm Law Group, Ltd. at (507) 387-7200 today or stephen@mankatobankruptcy.com.
